2022 (9) TMI 1257 - HC - Income Tax

Validity of proceedings u/s. 144 - notice of hardly three hours was given to the petitioners to attend the personal hearing - denial of natural justice - entire proceedings u/s. 144 were commenced and included within a short span of 11 days - HELD THAT - In C.B. Gautam v/s. Union of India and others 1992 (11) TMI 1 - SUPREME COURT observed that the very fact that an imputation of tax evasion arises where an order for compulsory purchase is made and such an imputation casts a slur on the parties to the agreement to sell lead to the conclusion that before such an imputation can be made against the parties concerned they must be given an opportunity to show cause that the under valuation in the agreement for sale was not with a view to evade tax. It is, therefore, all the more necessary that an opportunity of hearing is provided. In Sahara India (Firm) vs. Commissioner of Income- tax, Central-I 2008 (4) TMI 4 - SUPREME COURT Hon'ble Supreme Court highlighted the necessity and importance of opportunity of pre-decisional hearing to an asseesee and that too in the absence of any express provision. Show Cause Notices were issued on 19/02/2022 and the final impugned orders were made on 30/03/2022. There is some merit in the petitioners' contentions about the failure of natural justice in the peculiar facts of the present case. Therefore, without going into the merits and by focusing on the peculiar facts and circumstances of the present case like the shortness of the notice coupled with the fact that the petitioners are a Government Company which functions through its officials, we think that the interest of justice would be served if the impugned orders are set aside and the matter is remanded to the Assessing Officer for passing fresh orders after granting a reasonable opportunity of hearing to the petitioners. The penalty notices, which were consequential to the impugned assessment orders are also set aside for the present. Further, if the occasion arises liberty is granted to the respondents to reissue such notices.

Summary

Issues:
Challenging assessment order invoking Section 144 of Income Tax Act, 1961; Violation of principles of natural justice and fair play in granting a reasonable opportunity for hearing.

Analysis:
The petitioners contested the order made by the National Faceless Assessment Centre, New Delhi for the Assessment Years 2015-16 and 2017-18 under Section 144 of the Income Tax Act, 1961. The respondents argued that due to the petitioners' failure to file necessary returns, a best judgment assessment was conducted. The petitioners acknowledged the availability of an appeal but claimed a violation of natural justice, seeking to avoid the appeal process.

The petitioners' counsel argued that the short notice for a personal hearing did not provide a reasonable opportunity, especially considering the petitioners' circumstances as a Government Company with officers engaged in election duties. The respondents contended that despite multiple chances, the petitioners did not file returns, justifying the assessment without a full oral hearing. The court noted that the petitioners were entitled to a reasonable notice for a personal hearing after their request was accepted.

The court found that the short notice of three hours for the personal hearing was inadequate, especially given the petitioners' challenges in arranging representation. Citing legal precedents emphasizing the importance of pre-decisional hearing and principles of natural justice, the court concluded that the petitioners were not afforded a fair opportunity to present their case. The court set aside the impugned orders and penalty notices, remanding the matter for fresh assessment after granting a reasonable opportunity for hearing.

The court granted the petitioners 15 days to respond to the Show Cause Notices and directed the respondents to provide a fair hearing and dispose of the notices accordingly. The impugned orders were quashed, and the penalty notices were set aside, with liberty granted to reissue them if necessary. All parties' contentions on merits were left open for the respondents' consideration, and no costs were awarded.